“We are seeing more and more companies pivot to subscriptions.”
Last week, executives from McKinsey and Zuora presented the latest research findings from the Subscribed Institute based on research of 150+ companies. The goal of the research was straightforward: identifying the best practices to grow a B2C subscription business.
At 1 Liberty St, New York, the hybrid summit was hosted by Amy Konary, Zuora’s VP of Customer Business Innovation and Subscribed Institute’s Chair, and presented by Nimish Mittal, Associate Partner, McKinsey & Company.
The event kicked off with Mittal telling the assembled audience that there has never been such a high demand for B2C subscriptions, adding, “it’s an exciting space to be in”.
We are seeing more and more companies pivot to subscriptions because they are finding the traditional upfront business model more under pressure. Companies are looking to create a closer relationship with their customers and to capture more value over the customer lifetime, as well as avoiding the old boom and bust business model.”Nimish Mittal, Associate Partner, McKinsey & Company
Mittal then outlined the three critical strategies publishers needed to employ to get their subscription model right:
- Distinct value proposition: Publishers must develop a differentated offering that solves a clear customer pain point.
- Optimal pricing structure: Design the right pricing strategy to balance new customer acquisition and profitability.
- Customer lifecycle: Capture value across the full customer lifecycle (which demands a different mindset from one merely focused on short-term acquisition and churn).
Mittal went on to outline how many companies look at pricing based on a tiered “good-better-best model” whereas consumers only want one: simplicity. For companies willing to go down the route of ‘simplicity’, Mittal added that there was a “tremendous opportunity”. He added that B2C companies need to take a leaf from the B2B playbook and focus on net retention rate which helps evolve a company’s mindset more towards customer lifecycle and long-term value.
Here are the key ‘at a glance’ takeaways:
- Rate plan simplicity is equated with higher subscriber growth
“Each rate plan should be purposeful and target a specific target audience but (publishers) must avoid adding too many additional features or premium plans to justify a higher price point. Consumers do not want to feel like they are paying for services they don’t need.”
- Billing plan simplicity is equated with higher subscriber growth
“Simplicity in billing frequency enables consumers to more easily understand the value vs. trade-off equation. (Publishers) should choose billing frequency cycles aligned to the timing of value delivery. This is a critical guiding principle.”
- A balanced, focused product portfolio is crucial
“The more complex a product portfolio the less churn a company has over the short term but, over the course of a full customer lifecycle, customers find complex portfolios difficult to navigate. Portfolios can work really well, in part due to the flywheel effect, but bundles need to be very transparent, focused, and based on simplicity so customers can understand the value proposition.”
- Net retention rate is important
“Churn might be happening more to your lower-tier subscribers rather than your top-tier subscribers. Discovering exactly who is churning is immensely valuable. It’s critical to identify this so your strategy can be adapted accordingly.”
Subscriber churn does not fully represent the $ dollar value of churning subscribers. ARPU can be significantly influenced by acquisition pricing. Measuring and acting on net retention rate can help B2C subscription companies maximize long term value.Nimish Mittal, Associate Partner, McKinsey & Company.
During the Q&A’s Mittal answered a number of audience questions. Perhaps the most notable was his response to one publisher in the audience asking about subscriptions bundles, answering:
If you have a multiple audience it’s vital to de-stack it and have core offerings that are aimed at specific customer segments. You can then look at the overlays between different segments to see if there is a relevant bundled offering…..but each specific offering needs to be verticalized, narrowly focused and super relevant.
A video of the full presentation can be viewed using this link.